Saving the bond insurers: 5 fixes for the crisis

Just about everyone seems to have an idea on how to fix the troubled bond insurers and stave off a crisis that threatens to send the financial services sector into disarray.

Divide and survive
The plan: When testifying before Congress last week, New York Gov. Eliot Sptizer and State Insurance Superintendent Eric Dinallo told lawmakers that the best solution would be to recapitalize the bond insurers. If that failed, they would break up these firms into a "good bank" that would manage their healthy municipal bond insurance business, and a "bad bank" to oversee the smaller structured finance arm. Each division would remain part of a holding company.

The prospects: Likely. Of all the different solutions being floated, this proposal has garnered the most interest. After the bond insurer FGIC was downgraded last week by Moody's, the company asked Dinallo's office for permission to break itself up. Its larger rivals Ambac and MBIA are also reportedly considering similar moves.

A break-up would prevent cities and towns - which buy insurance on bonds they sell to raise money for projects like roads, schools and bridges - from getting saddled with higher borrowing costs. But it is widely believed that, after a split, the structured finance arm would wither and die, meaning downgrades on the asset-backed securities issued by Wall Street and more writedowns.

Uncle Warren to the rescue
The plan: A little over a week ago, Warren Buffett proposed a bold solution for the bond insurance crisis by offering to take over $800 billion of the industry's municipal bond obligations.

Under his plan, companies like Ambac and MBIA would focus on their troubled structured finance arm, which are the source of the industry's woes.

The prospects: Slim to none. Even though the announcement of the plan garnered significant attention, it appears unlikely that any of the companies approached will accept the deal; one firm has already rejected the offer, according to Buffett. More importantly, the plan would impose a pretty stiff premium on the bond insurers, while they would lose control of their low-risk and profitable municipal bond business.

Can you spare $15 billion?
The plan: When New York Insurance Superintendent Eric Dinallo implored some of Wall Street's top firms to kick in about $15 billion to help bail out the capital-squeezed bond insurers late last month, their responses were only moderately better than a cold-shoulder.

While major financial firms have a vested interest in keeping the insurers afloat, they have their own capital problems after losing billions as a result of the credit crisis.

The prospects: Possible. While a bank bailout plan seems unlikely, it is not off the table. A coalition of banks including Citigroup, BNP Paribas, Wachovia and UBS are reportedly working on a bailout plan of Ambac, the nation's second-largest bond insurer. One considerable risk, however, is that there is no indication that a one-time capital infusion would save these troubled firms' credit ratings. Sean Egan of independent ratings shop Egan-Jones has publicly stated that the bond insurers require somewhere closer to $200 billion in capital.

Short-seller solution
The plan: Pershing Capital Management's Bill Ackman has been one of the leading critics of the bond insurance industry, but offered up his own remedy for the crisis Wednesday. Under his proposal, the company's structured finance division would take control of its municipal business, with the two remaining under the umbrella of the holding company.

The prospects: Very doubtful. While the plan would insulate the municipal business and provide support to the structured finance division, it is unlikely that the industry would want Ackman to decide its fate, given his long-standing role as critic and industry short-seller. He stands to benefit if companies like MBIA continue to see their stock tumble even further. Just hours after Ackman pitched his idea, MBIA publicly rejected his proposal.

Buyer beware
The plan: Like the bank bailout program, the notion of a private equity, or distressed investor rescue doesn't remain out of the realm of possibilities. MBIA, for example, has raised about $2.6 billion in capital this year, part of which came from private equity firm Warburg Pincus. And famed distressed investor and billionaire Wilbur Ross has repeatedly said he is looking to invest in one of the bond insurers.

The prospects: Possible. While selling a stake to an outside investor would be a quick fix for the bond insurers, it remains to be seen if they could raise enough capital to satisfy Moody's and Standard & Poor's requirements to sustain their `AAA' rating. What's more, it would not necessarily cure the systemic problems that plague the industry, an area that some, including MBIA's newly appointed CEO Joseph "Jay" Brown, are hoping to fix.

Oil prices start to cool

Crude futures head downwards after heating up on weak heating oil inventory report.


NEW YORK (CNNMoney.com) -- Oil prices fell Thursday, despite a government report showing supplies of fuel used to make heating oil declined much more than expected.

Early Thursday afternoon, U.S. light crude for April delivery fell $2.39 cents to $97.31 a barrel. Oil traded up as much as 10 cents to $99.80 a barrel after the report's release at 10:30 a.m. ET, but have since retreated.

Traders initially thought the decline in distillates was demand-related, as colder temperatures in the Northeast have increased demand for heating oil, according to Phil Flynn, senior market analyst at Alaron Trading in Chicago.

But now Flynn believes that traders realize the weak supply is refinery-related, suggesting an overall decline in demand.

"The market's coming back down to earth," said Flynn. "$100 a barrel isn't a price anymore, it's a destination. It gets to the level, then it backs off."

In its weekly inventory report, the Energy Information Administration said crude stocks rose by 4.2 million barrels last week. Analysts were looking for a rise of 2.9 million barrels, according to a Dow Jones poll.

But distillates, used to make heating oil and diesel fuel, fell by 4.5 million barrels while analysts were looking for a 1.5 million barrel decline.

Refinery usage was lower than the previous week, operating at 83.5% capacity last week. And gasoline demand continued to fall, averaging just 9 million barrels per day over the past month.

These numbers are only a little higher than the same period last year.

Gasoline supplies rose by 1.1 million barrels, just above forecasts for a 1 million barrel rise.

Panning for black gold, a global challenge
Oil prices have soared recently as whispers of supply cuts and lower interest rates sent oil above $100 Tuesday and Wednesday.

Demand for gasoline has continued to weaken, leading some traders to believe that the Organization of Petroleum Exporting Countries will decide to cut its output at a March 5 meeting.

Also, in Federal Reserve meeting minutes released Wednesday, the U.S. central bank issued a weaker economic forecast for 2008, predicting slower growth, higher unemployment and higher inflation for the rest of the year. Some economists believe that the report indicated another interest rate cut is on its way.

An interest rate cut usually sends the dollar lower - and oil prices higher - as investors sell dollar-denominated securities and buy commodities as a hedge.

Also, oil is priced in dollars worldwide, so a falling dollar provides less incentive for oil-exporting counties to increase output, or for foreign consumers to cut back on oil use.

"It's a double-edged sword," said Flynn, who noted that when the Fed says the economy is bad, oil prices should go lower. But the Fed's solution to the weak economy - interest rate cuts - sends oil higher.

"So bad news is bullish news for oil," added Flynn.

After oil prices topped $100 a barrel for the first time on January 3, they pulled back to the mid-$80 range amid fears of a recession in the United States, the world's largest economy; however, oil prices have risen again by nearly $14 a barrel in the past few weeks.

Oil prices have risen nearly five-fold since 2002. Most analysts blame rising demand and tight supply. That has also attracted floods of investment money, and exaggerated the effects of supply disruptions.

Oil breaks $100, hits new all-time high

Crude soars as investors weigh the possibility of OPEC production cuts; Texas refinery explosion may have also lifted prices.

NEW YORK (AP) -- Oil prices hit new record highs Tuesday as a Texas refinery fire and fears of an OPEC production cut pushed crude to settle at over $100 a barrel for the first time ever.

U.S. crude for March delivery jumped $4.51 to settle at $100.01 a barrel on the New York Mercantile Exchange, topping the previous settlement record of $99.62 set Jan. 2.

Oil also hit a new all-time trading high of $100.10 a barrel, besting the previous high of $100.9 set Jan. 3.

A weekend refinery explosion in Texas and the possibility that OPEC will cut production next month are driving prices higher, although analysts say there isn't a single factor to explain the move.

The refinery in Big Spring, Texas is owned by Alon USA. It processes nearly 70,000 barrels of oil a day. Officials say it could be closed for as long as two months.

"The refinery fire in Texas is making people a little concerned," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.

March gasoline jumped 11.4 cents to $2.6078 a gallon, and March heating oil rose 10.41 cents to $2.751 a gallon.

The dollar fell Tuesday, giving investors another reason to buy oil. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

For the moment, investors appear to have put aside concerns about the economy that have sent oil prices down into the mid-$80 range twice since crude peaked above $100 last month. Traders are instead focused on the Organization of Petroleum Exporting Countries, which will meet early next month to map out production plans, and Venezuela, where President Hugo Chavez made conflicting statements this weekend about the country's legal dispute with Exxon Mobil Corp. (XOM, Fortune 500)

OPEC could move to cut production in the second quarter, typically a period of low demand, though many analysts feel that's unlikely. In Venezuela, Chavez said he was not serious about an earlier threat to cut oil sales to the United States, but also threatened to sue Exxon Mobil. The world's largest oil company is fighting Venezuela's nationalization of an oil project, and recently convinced several courts to freeze $12 billion in Venezuelan oil assets.

None of the news is enough to justify a nearly $3 a barrel jump in the price of crude, said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm. Echoing other analysts, Cordier argued that the oil market is in the process of "decoupling" from oil's supply and demand fundamentals. He said investors drawn by the falling dollar and momentum are pushing oil prices sharply higher despite reports last week from the Energy Department, OPEC and the International Energy Agency which all cut oil demand growth predictions for this year.

"Everyone concurs that we've got smaller demand coming in the U.S.," Cordier said.

Retail gas prices, meanwhile, jumped 1.8 cents to a national average price of $3.032 a gallon Tuesday, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, are following oil prices higher. The Energy Department expects gas prices to peak near $3.40 a gallon this spring.

Other energy futures also rose Tuesday. March natural gas jumped 30.1 cents to $8.961 per 1,000 cubic feet. Analysts said prices were supported by forecasts for cooler weather, but that futures were also following oil prices higher.

In London, Brent crude for April delivery rose $3.25 to $98.16 a barrel on the ICE Futures exchange.

My sister can’t manage her money

Finances can be a touchy subject among family members. If you try to offer help, proceed with caution, says Money Magazine’s Walter Updegrave.

Question: My 53-year-old unemployed sister has recently received a small amount of money, probably $5,000 to $10,000. She wants to know how to invest it, but she finds financial matters confusing. I’ve tried to help her before, but like many people who are waiting for the big lottery win, she seems to lack the discipline to manage money effectively. I want to help her, but I struggle advising her and other family members because of the huge gap between my financial status and theirs. Is there some wise advice I can give to someone in her circumstances? –Ken, Colorado

Answer: Your sister isn’t the only one who needs to reconsider how she’s dealing with her shaky financial situation. You do too.

I’m sure it’s frustrating that financial concepts that are so self-evident to you - spend less than you earn and then invest sensibly to build wealth for the future - don’t seem to take with her. But having grown up in a family that struggled financially, I can tell you that it’s no easy task to apply these ideas to the reality of your life when you’re having a hard time just scraping by day to day.

You’ve got to realize that helping your sister become more financially secure isn’t just a matter of imparting financial wisdom. If you want to help her change her behavior and improve her situation, you’re also going to have to be patient and sensitive to what she’s going through.

So with that in mind, what sorts of things should you be doing to help out your sibling financially?



Long-term investing
Let’s start with her windfall. If after talking to your sister you think there’s a realistic chance that she’ll be able to invest some of this money for the long-term, then you should help her get it into an investment that requires very little attention on her part, most likely an asset allocation or target-date retirement fund. This way she gets a fully diversified portfolio with no effort on her part. You can find asset allocation funds by typing asset allocation into the Quotes box at Morningstar.com. For a target-date retirement fund, check out our Money 70 list of recommended mutual funds.

But given your sister’s precarious financial situation, I think there’s a good chance she won’t be able to take the long-term approach with this money. I suspect she’ll have to draw on it fairly regularly for any number of reasons. If that’s the case, then she probably should have all or nearly all of it in an investment that offers security of principal and relatively easy access.

Liquid cash
Normally, I’d say a money-market fund would fit the bill, but you don’t want to make it too easy for her to get at this money. So you might recommend that your sister put a portion of her windfall in a money-market fund and spread the rest among CDs with maturities ranging from six months to two years. This way she can get to the CD money if she really needs it, but the prospect of being docked for an early-withdrawal penalty may make her less apt to raid the CDs for anything less than a true emergency. And if it turns out your sister does need some of her CD funds, then at least dividing the money among several CDs instead of putting it all in one would save her from having to pay the prepayment penalty on her entire stash.

Without being too pushy, you should try to help your sister set up these accounts. Otherwise, it might not get done. Earning a high return isn’t your top priority here; making sure the money makes it into the accounts is. But you and your sister can assure that she at least gets a competitive return on this money if the two of you sit down together and check out CD rates here and money-market fund yields here.



Planning for the future
After your sister finds work again, try to encourage her to begin saving on her own so she’ll have something to support her in retirement besides Social Security. If her next job has a 401(k) plan - and you can suggest that she look for one that does - try to persuade her to contribute at least enough to get any matching funds her employer may offer. If she doesn’t have access to a 401(k), then recommend that she contribute to an IRA.

Depending on how much she earns and how much she contributes to a 401(k) and/or IRA, she may be able to qualify for a Retirement Savings Contribution tax credit, which would lower her tax bill and make it more palatable for her to save. (For details on this credit, which maxes out at $1,000 for individuals and $2,000 for married couples, click here.)

Again, I think the chances of her pulling this off will increase dramatically if you actually guide her through the process of opening the accounts and help her choose the investments. But you also have to consider the possibility that you simply may not be the right person to help your sister. She may feel uncomfortable or embarrassed at being in the position of having to take financial advice from a sibling.

If that’s the case, you may be better off buying her some time with a financial planner who can go over her finances with her and get her started on a savings and investment plan. While most planners prefer long-term relationships, there are some who will work on an hourly or project basis, which would probably be more appropriate in your sister’s case. You can contact planners willing to work on that basis by clicking here.

There’s no guarantee that any of these suggestions - or for that matter, any other strategies - will work. But I don’t think it’s a waste of time to try. If you succeed, your sister will be better off financially. If you don’t manage to help her improve her financial situation, I think you’ll both still feel better than if you hadn’t tried at all.

Loan crisis goes to college

Paying for college could get even tougher this year as smaller lenders tighten standards and raise rates. But big banks are holding the line.


NEW YORK (CNNMoney.com) -- The credit crunch is hitting the college classroom.

When parents and students try to line up college funding this spring, they will likely be in for a nasty shock. They may still get a loan, but it will come at a price. Borrowers will have a more limited choice of lenders and find discounts for on-time payments or direct debit scarce. On top of that, they'll see higher rates and fees.

The credit crisis, which started last year with mortgages and has bled into many other areas, is now affecting student loans. Many lenders, particularly smaller companies not affiliated with banks, are finding their main source of funding for private student loans cut off as investors balk at buying securities backed by these loans. This will force some to boost interest rates on private loans by up to 1 percentage point, raise minimum credit scores to 650 and require parents to co-sign the loans, experts said.

"If lenders are not able to securitize, they are not getting the capital to make new loans," said Mark Kantrowitz, who runs FinAid.org, a college funding Website based in Cranberry Township, Pa. "It's an issue of liquidity and cost of capital."

On top of this, legislative changes enacted by Congress last year have sent some lenders fleeing from the federal student loan program. Lawmakers reduced the subsidy lenders receive for making government-backed loans.

While the interest rates on federal loans are set annually by the government, many lenders will stop waiving origination fees and cut out the discounts offered borrowers after they start repaying the loan, boosting the overall cost.

Private loan problems

With little or no profit to be made in the federal loan arena, some smaller lenders are exiting the business, while others are shifting their focus to the more lucrative private loan industry. Others, however, are curtailing even their private loan originations.

San Diego-based College Loan Corp., the eighth largest federal loan originator in 2006, recently announced it would stop making these loans as of March 1, though it will continue originating private loans. Lincoln, Neb.-based Nelnet Inc. (NNI) last month issued a statement saying it would "be more selective" in the loans it originates as it lays off 300 people, or 10 percent of its workforce. And on Tuesday, the Michigan Higher Education Student Loan Authority said it would stop making private loans, known as MI-LOAN.

"It's an area of concern, both in terms of the number of players and the cost of loans that students have to pay," said Tom Joyce, a spokesman for Reston, Va.-based Sallie Mae, the nation's largest lender formally known as SLM Corp (SLM, Fortune 500).

As college costs skyrocket, a growing number of parents and students rely on private loans to cover the gap between tuition and federal loans, which are limited to between $3,500 and $5,500 a year. Private loans made up 24% of education borrowing in 2006-07, up from 6% a decade earlier, according to the College Board, a New York City-based nonprofit higher education access group.

These loans, however, are much more expensive than their government-backed peers and will become even more so. For 2008-09, students will pay a fixed 6.0% on a subsidized federal loan, while the rates on private loans are as high as 13%, depending on the borrower's credit profile, and are inching upward, according to Kantrowitz. Rates on private loans change quarterly or annually, and two-thirds of borrowers pay the highest rate, he said.

"Most students will be able to get them, but they will have to be careful," said Sandy Baum, senior policy analyst at the College Board. "There will be an even greater risk of high interest rates and unfavorable terms."

Higher margins, more interest

While costlier for borrowers, the higher margins on private loans are attracting more lenders with the wherewithal to make these loans.

Private loans, for instance, made up 31% of Sallie Mae's $25.5 billion in originations in 2007, up from 20% five years earlier. The company, which suffered recently after a buyout by J.C. Flowers failed, is close to securing $35 billion in financing to carry it through the next school year. It plans to focus on the higher-margin private loan market.

JPMorgan Chase (JPM, Fortune 500) said the recent wave of failed auctions for investments backed by student loans won't affect its operations. The bank keeps its loans on its books so it is not affected by the securitization freeze. Like other big banks, Chase is not planning to raise its rates.

Chase is actually expanding its student loan operations because it has low defaults and puts the bank in touch with young people to whom they can pitch other products. In the fall it hired 140 people from struggling Nelnet and continues to add to the staff.

Blue chips that can ride out a recession

Solid stocks have been dragged down along with troubled shares. Learn to spot the bargains.

(Money Magazine) -- Really bad stock markets knock down shares of all kinds. That's essentially what has been happening since the start of 2008, as subprime fallout led to recession anxiety. But not every market sector faces the same problems and uncertainties.

Even if we are in a downturn, many companies will come through with their long-term prospects untarnished. Scoop up such stocks while their prices are depressed, and you have a real chance to boost your returns.

The way I see it, the stock market now is actually three markets. First, there are companies that depend on borrowing and lending, including home builders and makers of big-ticket consumer items that typically require financing, as well as bank stocks. Their shares all posted double-digit losses last year.

Yes, the stocks are starting to look like bargains, and the Fed's aggressive interest-rate cutting should eventually spark a recovery. But I'd be worried about buying in too early: The final chapter of the subprime story isn't written yet.

At the other extreme, inflation-sensitive sectors, such as energy and other commodities, have boomed for several years running. But they've had sizable losses so far in 2008, they're still relatively expensive, and they could stay down for a while if demand for raw materials falls in a slowing economy.

Finding the best deals
That still leaves a big swath of stocks whose share prices are down but which are unlikely to suffer lasting damage from the subprime flu or any mild cold the economy catches. The industrial, technology and consumer sectors all fall into this category.

In particular, companies that derive a large percentage of their earnings from outside the U.S. have the best chance of riding out a bad domestic economy. For example, two of the stocks I recommended in last month's column - Hewlett-Packard (HPQ, Fortune 500) and 3M (MMM, Fortune 500) - get at least 60% of their sales abroad.

Spotting true bargains during this downturn is no layup, though. Price/earnings ratios based on anticipated results may be misleading, for instance, because growth may not come through as expected this year. So make sure that a stock also looks cheap compared with its peers based on P/Es using 2007 earnings.

Another smart way to compare stocks is by ratios of price to cash flow (the cash per share a company actually generates each year). The reason: Cash figures tend to be less volatile than earnings.

Three stocks to watch
In doing a little bargain hunting among stocks in the Sivy 70, I found three that have solid prospects, trade at P/Es below 15 based on 2007 earnings and are priced at less than 10 times cash flow. Those multiples count as cheap by anyone's calculations.

DuPont (DD, Fortune 500) announced 27% earnings per share growth (excluding one-time items) in the fourth quarter and recently raised its earnings targets for 2008. How does a company in a cyclical industry such as chemicals buck a U.S. recession? Almost two-thirds of sales come from overseas, where they are growing up to 20% a year in countries such as Brazil, China and India.

The hottest part of DuPont's business has been agricultural products, boosted by rising food prices and demand for ethanol. That division, which accounts for almost a quarter of sales, is growing twice as fast as the rest of the company. As an added bonus, DuPont shares yield a very healthy 3.8%, making them a great choice for retirees.

Fortune Brands (FO, Fortune 500) is a conglomerate with top-name consumer brands, including Jim Beam bourbon and Titleist golf balls. The company also has a home and hardware division, which consists of product lines like Moen faucets. Those businesses have been suffering because of the bad housing market. As a result, the stock has fallen close to a 52-week low of $66, down from a high of $90. That looks like too much punishment for limited housing exposure. Besides, Fortune is restructuring to trim costs, downsizing its home and hardware division and selling its wine business. As a result, the company took a large write-down in the fourth quarter.

But long-term growth has averaged 9% annually and is projected to continue at that rate over the next five years. Add in the stock's solid 2.6% yield, and you have double-digit return potential.

IBM (IBM, Fortune 500) reported terrific fourth-quarter results. Earnings per share were up more than 20% on a 10% rise in sales. A third of the increase in per-share profits was the result of 2007 stock buybacks totaling almost $19 billion. The rest of the profit gain was mostly from IBM's extensive business outside the U.S., which now accounts for almost two-thirds of total sales.

The company is enjoying especially strong growth in Asia and some developing markets. Bookings for service contracts in 2008 are also several billion dollars above expectations, and IBM has raised earnings projections for 2008. As Big Blue goes global, seems like it would deserve a market-beating multiple.

Stocks we love

Forget flowers and chocolates. Our Valentines should make you money. Check out our picks for this year's most lovable stocks.
By Ben Rooney, CNNMoney.com staff writer

How we chose the stocks
In honor of Valentine's Day, we carefully selected five stocks that will make your portfolio swoon. We screened thousands of stocks to come up with the most appealing combination of earnings and sales growth, reasonable valuations and some of the sexiest balance sheets around.
But we know how easy it is to get your heart broken in a market as volatile as this. So we picked stocks that we think you'll want to commit to for the long term.
If you want some financial love this Valentine's Day, look no further.
Garmin
(GRMN) P/E: 18.4, EPS Gr: 19% Just as you can count on Garmin's global positioning systems to prevent you from getting lost, you can probably depend on Garmin's strong market position to keep you from a loss in your portfolio.
Yes, the stock has slipped recently due to competition from rival GPS makers and fears that an economic slowdown will crimp sales. These are valid concerns but one analyst thinks the sell-off is overdone.
"While we can't ignore the possibility that a U.S. economic slowdown could affect Garmin, we believe any impact is likely to be more modest than the current share price suggests," wrote Needham analyst Richard Valera in a research note.
Also, Garmin announced late last month it will enter the smartphone market with its nüvifone. The device will feature GPS, of course, as well as mobile Web-browsing capabilities.
Though some questions remain about which carrier will support the gadget and how much it will cost, the nüvifone has strong potential, according to Deutsche Bank analyst Jonathan Goldberg. "All in all, we believe Garmin has released an intriguing teaser," he said.
Laboratory Corp of America
(LH) P/E: 16.5, EPS Gr: 15% LabCorp's allure is undeniable to investors looking for strong growth.
The nation's second-largest independent clinical laboratory company captured our hearts when it announced recently that it expects 2008 net income to be in the range of $4.74 to $4.90 per share. Wall Street analysts were expecting 2008 earnings of $4.15 per share.
Among LabCorp's many charms: the company reported healthy cash flow in its last quarter, is expected to complete three acquisitions by the end of the first quarter and is likely to continue its aggressive share repurchase activity.
"Investors should take solace that the slowing economy has not significantly affected clinical laboratory operations and that [LabCorp.'s] focused strategy is poised to yield strong returns in 2008," wrote Bank of America analyst Robert Willoughby in a recent research note.
Nike
(NKE) P/E: 17, EPS Gr: 14% We've had a long-term love affair with Nike. The athletic apparel maker made our list of "Stocks we love" in 2005, back when the company's international exposure first stole our hearts.
Since then, Nike has continued to see strong growth overseas, particularly in China, but domestic sales have held up surprisingly well despite economic instability. In its most recent earnings report, the company said U.S. revenues increased 7%.
"Nike is best positioned to weather the storm given its premier brands, global reach and consistently solid execution," JP Morgan analyst Robert Samuels wrote in a recent research note.
What's more, Nike stands to benefit from a number of large sporting events this year. Both the Beijing Olympics and the European Soccer Championships will provide huge sales opportunities for new products that Nike has in store.
Precision Castparts Corp
(PCP) P/E: 16, EPS Gr: 20% Precision Castparts may not be the sexiest stock on our list but the company's financials are are certainly eye-catching.
The maker of aerospace and automotive components said profit jumped 55% in its fiscal third quarter, which ended in January. The company cited strong sales across all major segments. And like the other companies on our list, Precision Castparts is well positioned to withstand an economic slowdown.
Demand for aerospace components remains robust despite the gloomy economic climate, according to JP Morgan analyst Joseph Nadol.
What's more, the stock trades at a discount to its industry counterparts. Nadol thinks it deserves to trade at a higher valuation than its peers.
"We believe Precision Counterpart's much higher than average growth rate, driven by smart acquisitions, efficient operations, and increasing market share justify a premium to the group," Nadol wrote in a recent research report.
Tata Motors
(TTM) P/E: 15.8, EPS Gr: 20% Tata Motors, India's largest automobile company, is our long-distance lover.
The stock is listed on the New York Stock Exchange as an American Depository Receipt (ADR), which means investors in the U.S. can buy Tata shares without having to open an Indian investment account or worry about exchange rates.
Tata made headlines recently when it unveiled the world's cheapest car, the Nano, which sells for as low as $2,500. With the Nano, Tata could tap into the rapidly growing market of middle-class buyers in emerging economies like India and China.
Also, Tata has a number of promising acquisitions and partnerships in the works. Tata is in talks with Ford to buy the American carmaker's Jaguar and Land Rover brands. And the company's manufacturing subsidiary recently signed a deal to produce parts for Boeing's 787 Dreamliner.

Bidville and beyond: EBay refugees' options

Even Amazon says it's seen a spike in seller registrations since word broke of eBay's controversial new policies.

More than 350,000 sellers are registered on Bidville, but 25,000 active accounts provide most of the site's 1 million listings, Hoffman said.
Overstock - the site best known for liquidating retailers' excess inventory at low, fixed prices - also sees opportunity in eBay's new policies.
Following eBay's announcement last week, the Overstock (OSTK) team worked through the weekend to design a new strategy highlighting its lesser-known auctions space, said Overstock CEO Patrick Byrne.
The result? Overstock, in Salt Lake City, will redesign the header on its homepage to direct more traffic to its auctions tab. It plans to accelerate a software rollout that will beef up its auctions community message boards - and it's laying plans to produce 15-second Internet commercials to get the word out.
"We think the time is right to position ourselves in this category," Byrne said.
Even Amazon has noticed an uptick in new seller accounts in the last week. Best known in its early days as an online bookstore, Amazon (AMZN, Fortune 500) expanded into consumer electronics and other categories, and in 2000 began allowing third-party sellers to list their wares alongside Amazon's offerings. All products are offered at a fixed price.
Today, 26% of all items sold on Amazon come from its 1.3 million third-party sellers, who range from mom-and-pop vendors to Target Corp (TGT, Fortune 500).
Amazon refrains from offering auctions because its buyers and sellers prefer the convenience of a set price, according to business solutions general manager Matt Williams. Amazon has devised a number of different rate programs for sellers; one takes a percentage of gross revenues, while another charges a referral fee per item.
"We've certainly heard of frustration with other marketplaces, and we've seen a significant increase in registrations," said Williams.
Longtime eBay seller Debi Lee said Amazon has worked well for certain items in her repertoire. She tired of eBay's tactics and now uses the site primarily to educate consumers about her products, which include silk clothing for plus-sized women. Lee has also launched her own Web store and advertises through Google's AdWords, where she pays only when consumers click on her ad.
The Google question
A number of sellers are clamoring for Google (GOOG, Fortune 500) to launch an auction site, and Lee said she might conside that option if it were available. Lee also plans to investigate Buy.com and Etsy, which focuses on handmade crafts.
"Why sell only through one venue?" said Lee, of Oakland, Calif. "Those 100%-reliant on eBay for their livelihood will now understand that folly."
Google is being customarily tight-lipped about any plans to examine the auction space. "We don't comment on market rumor or speculation," said a company spokeswoman.
How Google can make - or break - your company
Yahoo retired its U.S. and Canadian auction sites in June 2007, but it still operates Yahoo Auctions in select Asian markets. Company spokeswoman Diana Wong declined to speculate on whether Yahoo (YHOO, Fortune 500) might get back into the U.S. auctions business.
Representatives of Microsoft (MSFT, Fortune 500), which last week launched a $44 billion bid to buy Yahoo, also declined to comment.
Meanwhile, eBay's corporate response to the seller backlash is to downplay it.
While sellers are burning up Internet forums, including FSB's discussion board, with vitriolic criticism of the planned new policies, eBay spokesman Usher Lieberman said sellers' reactions in eBay's town hall forums have been "balanced."
"The community understands the rationale behind these changes," he said.
At the same time, Lieberman acknowledged that eBay's sellers are, first and foremost, entrepreneurs.
"They have a lot of different channels available to them, and we expect they're evaluating what the changes mean for their business," he said.

EBay rivals circle vulnerable auctions kingpin

Sellers fleeing eBay are flocking to a crop of upstarts.

(FORTUNE Small Business) -- In the online auction space, "eBay" is a verb. Since launching in 1995, eBay (EBAY, Fortune 500) has been the online marketplace for people seeking to unload or pick up anything and everything.
But a week after eBay announced massive changes to its fee structure and its vaunted feedback policy, competitors say the behemoth seems suddenly vulnerable. Outraged sellers have begun seeking new outlets to hawk their products, and alternative marketplaces are seeing significant jumps in new-user registrations.
OnlineAuction.com, based in Grants Pass, Ore., reports that roughly 7,500 new sellers have opened accounts since eBay announced its new policies last week. That's a 15% jump in the site's user base, within a matter of days.
"eBay has dropped the ball, and there's a huge window of opportunity," said OnlineAuction CEO Chris Fain.
Another contender, eCrater, has registered 1,400 new sellers within the last few days. That's more than double the site's average weekly total.
"They call and introduce themselves as eBay refugees," said eCrater founder Dimitar Slavov.
Creators of eBay alternatives say their time has come.
"People are seeing the light, and it's very exciting," said OnlineAuction's Fain, who is a former eBay "PowerSeller," eBay's designation for its highest-volume sellers.
Fain's sales of vintage watches and specialty cars reached $1 million a year on eBay, but he became disenfranchised with the company's steady rate increases.
"I was paying eBay $7,000 to $8,000 a month in fees," said Fain, who launched OnlineAuction in 1998 but continued selling on eBay until 2005. "They were taking too big a piece of my bottom line."
While eBay charges sellers a percentage of an item's final sale price, OnlineAuction refrains from taking a cut. Instead, it allows vendors to list as many items as they want for a flat membership fee levied on a monthly or yearly basis.
"We're the Costco (COST, Fortune 500) of online auctions," Fain said.
Should OnlineAuction reach the 250 million-strong user base that eBay currently holds, the company could be "six times more profitable without being as greedy," Fain claims.
He estimates that 85% of OnlineAuction's sellers are eBay defectors. The site now has 50,000 sellers, with more than 11 million items currently listed.
That's still a mere fraction of eBay's 113 million items, Fain admits.
"Because eBay is such a huge entity, it's hard to compete unless you get the people behind you," Fain said. "But that's what's happening right now."
Sellers seek alternatives
Part-time vendor David Cox is one of those people. Last week, he concluded a 10-year run selling computer accessories on eBay and opened an $8-a-month account with OnlineAuction. Cox, of Marble Falls, Ark., said his new home reminds him of eBay's early days.
"I feel they will be more responsible to me as the seller," Cox said. "It certainly won't have the market that eBay does now, but I'm positive in time buyers will migrate to other sites."
Cox plans to also check out eCrater, which allows sellers to use its marketplace free of charge. ECrater founder Slavov said vendors will never be asked to pay anything.
"There are too many fees on eBay and Amazon," said Slavov, a software developer who launched eCrater in 2004. eCrater, based in Irvine, Calif., turns a profit by charging vendors for premium positions, selling Internet advertising and partnering with Google Checkout.
ECrater now has 33,000 active sellers and lists nearly 1 million items, according to Slavov.
Another upstart attracting attention from fleeing eBayers, San Francisco's iOffer, is built around a focus on friendly engagement between buyers and sellers. In lieu of using an auction format, iOffer has sellers state a starting price or ask buyers to make an offer. Both parties negotiate until they're satisfied.
"Overall, I'd say sellers like being more interactive," said iOffer CEO Ryan Boyce. "There's more flexibility, and you can sell a lot more when you engage with the buyer."
Listing items on iOffer is free. Final value fees are levied on a sliding scale but are significantly lower than eBay's, Boyce said.
Also a plus for former eBayers: Sellers can transfer their eBay feedback scores to iOffer.
"They're not starting from zero," Boyce said. Another iOffer feature allows users to trade items.
"With the recession, people don't have as much free cash lying around, so swapping has become more popular," he said.
iOffer has accumulated 75,000 sellers and nearly 1 million total users since its 2002 launch.
Another auction site, Chicago-based uBid, targets bulk sellers liquidating excess inventory. Its 7,000 participants include Sony (SNE), Motorola (MOT, Fortune 500) and Dell (DELL, Fortune 500). All sellers submit to a 10-point financial exam to ensure they're qualified to do business on the site: "That's part of our stringent anti-fraud stance," said uBid CEO Jeff Hoffman.
However, uBid is not a viable alternative for eBay vendors who aim to sell products at or close to retail price. Most uBid auctions start at $1 and carry no reserve price.
"If your eBay store is the way you feed your family, you sell for profit," Hoffman said. "Ubid is for asset recovery on products that aren't selling at retail."
On the other hand, the auction site Bidville, which uBid purchased in 2006, does focus on what Hoffman calls "consumer-to-consumer" sales - the market eBay now dominates. Listing an item is free, and final value fees start at 5% for items under $25. For items that sell for $1,000 or more, sellers pay a flat $25 fee plus 1% of the amount over $1,000.

EBay's PayPal funds freeze plan draws fire

EBay's new policy of holding PayPal funds on "high-risk" transactions for up to 21 days has business owners spooked.

(FORTUNE Small Business) -- In the uproar that erupted over the planned fee hikes and other policy changes eBay announced last week, one drew particular ire and incredulity: eBay's plan to hold payments sent through its PayPal payment service for up to 21 days in certain circumstances.
The freeze will apply to transactions eBay (EBAY, Fortune 500) considers high-risk, and is intended to protect buyers from the hazards of a bad transaction. By hanging on to funds, eBay can easily refund them if a seller doesn't ship a purchased item or sends damaged goods.
What is sparking reactions ranging from annoyance to panic among some of eBay's sellers is the company's criteria for determining what transactions fall into the "high-risk" category. Factors beyond sellers' control, including the number of "feedback" comments they have from previous buyers and how many of those comments are positive, can trigger the freeze.
"It's like a bad dream, really," said Dana White, an eBay seller who lives outside Ocean City, Md., and deals in used clothing, shoes and accessories. "I'm a small seller. All I need is two negatives in a 30-day period, and they will hold funds."
Representatives from PayPal, which eBay acquired in 2002, declined to comment on how the new policy would affect individual cases, but noted that the changes are paired with increased protections for merchants who use the service.
If Paypal deems a transaction fraudulent, it currently covers merchants for up to $5,000 per year. That cap will be lifted for eBay's PowerSellers, the site's highest-volume merchants, who will now receive unlimited coverage. PayPal will also offer PowerSellers protection on items sent to any address (not just confirmed addresses, the current policy) and expand its merchant coverage for international sales.
PayPal estimates that its new hold policy will affect less than 5% of eBay transactions, and it emphasizes that only relatively untested sellers risk incurring a freeze. Merchants who have been registered with eBay for more than six months, have a feedback score of 100 or higher (meaning they've received positive comments for at least that many transactions), and have a "dissatisfied buyer" rate of less than 5% will never have their funds held.
But on a site that hosts an estimated 113 million listings worldwide at any given time, a policy affecting as many as 5% of those transactions puts millions in jeopardy. If funds are frozen after a sale, PayPal will release them after the buyer leaves positive feedback, three days after the item's confirmed delivery, or at the end of 21 days without a dispute, whichever happens first.
Paypal says the factors that will play into its formula for triggering a hold include the length of time a seller has been on eBay, the seller's feedback rating, and the final cost and shipping fees for the item.
Because PayPal has sole discretion over whether to freeze funds, sellers are upset about a perceived lack of accountability. They're also grouchy about eBay's efforts to force buyers to rely on PayPal: in some categories and for all new sellers, eBay requires vendors to offer PayPal as an option or have their own merchant credit card account. The site has blocked rival payment systems such as Google (GOOG, Fortune 500) Checkout, saying they are not yet proven safe.
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"The feeling among my forum members is that this new [21-day hold] policy is beneficial for buyers but negatively affects sellers," said Bob Lee, who runs PowerSellersUnite, a popular outlet for entrepreneurs who run businesses on eBay. "A seller is at risk of being taken advantage of by the buyer. Not having access to revenue and having to wait for a buyer to leave positive feedback leaves sellers in the lurch. PayPal and eBay are not allowing sellers to play on a level field."
The new policy has some questioning its legitimacy: Can PayPal legally freeze funds at will for up to three weeks?
The answer is yes. While PayPal offers interest-bearing accounts, debit cards, and other trappings traditionally associated with banks, it legally isn't one.
PayPal is classified as a "deposit broker," according to David Barr, a spokesman for the Federal Deposit Insurance Corporation (FDIC). A deposit broker can perform some of the same functions that bank might, but it ultimately depends on banks to hold its money. Other examples of deposit brokers include companies like Charles Schwab (SCHW, Fortune 500), the discount brokerage house.
Buyer and seller money passes through PayPal - "a conduit, so to speak," Barr said - and is then deposited in a traditional bank. That means money parked with PayPal can be eligible for so-called "pass-through" insurance by the FDIC. However, that protection doesn't apply to funds held in a PayPal money market account, which are not FDIC-insured. (Coincidentally, PayPal money-market holders were recently issued incorrectly low January dividends, but that mistake stemmed from a third-party glitch and is now being corrected, according to a PayPal representative.)
While PayPal's operations lie outside of U.S. federal banking regulations, states can individually decide to regulate the company - and in the past some have made overtures in that direction. In 2002, Louisiana banking officials asked the company to cease offering its services to the state's residents until it received a money transmitter's license. PayPal did, and hasn't faced any significant state-level action since. A spokeswoman for the Louisiana Office of Financial Institutions confirmed this week that PayPal is a registered money transmitter with the state.
Some sellers have talked of challenging PayPal money freezes in courts, something that's been done before. In 2002, PayPal users in California sued, arguing that PayPal violated the state's consumer-protection laws by locking accounts containing money involved in a fraud investigation. (PayPal froze all cash in affected accounts, not just the money involved in the investigation.) However, the case did not result in any determination of liability: PayPal paid a $9.5 million settlement to end the case in 2004.
PayPal spokeswoman Amanda Pires said the issues at stake in the California case were "totally unrelated" to those being raised in relation to the new 21-day hold provision.
"Obviously, it's legal. We wouldn't do it if it wasn't," Pires said of the provision, noting that the right to temporarily hold funds is reserved in PayPal's user agreement.
PowerSellersUnite's Lee conceded that point: "Everyone who joins PayPal agrees to their terms. Unless a court finds PayPal subject to the same regulations as a bank, it would be a hard case to make."
PayPal's Pires says the changes will increase buyer confidence and generate more sales for eBay's merchants. Some eBay entrepreneurs agree with that assessment.
Jon and Stacie Sefton are the owners of B & H Factory Outlet, a Cedar Rapids, Iowa, designer-clothing retailer that sells exclusively on eBay. What began as a home business five years ago now has 70 employees and is eBay's largest clothing merchant. The Seftons are in favor of PayPal's new policies, and believe the changes will achieve PayPal's aim of boosting protections for both buyers and sellers.
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B&H does 20% of its business internationally, so PayPal's expanded global protections will directly benefit the company's bottom line, as will its move to expand PowerSeller protections for shipments to any address, not just confirmed ones. Overall, Paypal's effort to weed out unreliable sellers helps everyone who does business through its marketplace, Jon Sefton said.
Also backing the changes is Jonathan Garriss, CEO of eBay shoe store Gotham City Online and executive director of the eBay Professional Sellers Alliance, an influential outside lobbying group.
"That is a big deal because now eBay and PayPal are getting involved in the transaction to make sure buyers get what they are expecting," Garriss said.
His group has long been frustrated by the hands-off, "buyer beware" stance eBay's management has traditionally had about its marketplace: "Imagine if that was the case at the local mall," Garriss said. "That's no way to shop."
But eBay's PayPal changes have already cost the company Suzy Lancaster, a 52-year-old seller from Wichita Falls, Tex., who has been selling on eBay for more than a decade - or, as she puts it, since "back when [eBay founder] Pierre Omidyar started it as Auction Web and ads looked more like e-mail." Lancaster remembers the days when bidders sent cash to sellers through the mail to pay for their purchases.
After last week's announcement of eBay's upcoming policy changes, she closed her Pigeon Alley Books store on eBay and began working on a standalone e-commerce website. EBay's PayPal changes will make small sellers even more vulnerable to unscrupulous buyers, because they will have every incentive to avoid getting dinged with bad feedback that might trigger a freeze on their PayPal account, she said.
"We've spent years trying to build up a good business reputation," she said. "It's going get shredded by someone who doesn't realize [the impact of their feedback]."
Lancaster echoed a common sentiment expressed by eBay business owners in this week's uproar: concern that the site is transitioning to a marketplace only for professional sellers, with no room for smaller vendors or hobbyists. John Donahoe, elevated to CEO-elect two weeks ago when Meg Whitman announced her impending retirement, fed those fears with an oft-repeated dismissive comment to the Financial Times in December, complaining that "our home page still looks like a flea market."
Lancaster said she is sad to see eBay becoming a marketplace only for businesses that "buy inventory by the boatload."
"They already have a place for that," she said. "It's called Wal-Mart (WMT, Fortune 500)."

5 PayPal alternatives

Sick of PayPal? Check out these e-commerce solutions for business owners.
By Emily Maltby

Set up and grow
Digital River
Digital River, based in Eden Prairie, Minn., has worked with 40,000 online stores to build e-commerce functionality, starting with basic shopping cart features. Understanding that each business has different needs, Digital River can implement new features as its clients grow, such as multi-currency support for overseas expansion or integrating "try before you buy" options. Best selling point: Digital River does not hold sellers' money and will take the hit if a product needs to be returned.
"Digital River understands that small business owners need that cash immediately," explains David Heath, CEO of Matrix Games, a computer game company that has worked with Digital River for three years.
Digital River has no up-front cost and won't charge until the first sale. Then, its fee is based on performance, beginning at 2.9% plus a $1.00 transaction fee.
"Our cost analysis shows that it would be foolish for us to try alone what Digital River does," Heath says.
Credit card heaven
2Checkout.com
"I knew I had to start accepting credit cards on my online site or my company wouldn't grow," says Troy Godshall, owner of APlusTemplates.com. "I had poor credit at the time and knew I wouldn't get a merchant account, but 2Checkout.com allowed me to accept credit cards without all the paperwork."
2Checkout.com processes credit cards and checks while monitoring for fraud and ensuring data security. The site has about 50,000 active vendors and signs up 1,500 new clients every month. For each transaction, there's a 5% rolling reserve for 90 days. Vendors with an existing shopping cart system can integrate their platform with 2Checkout.com or chose to use 2Checkout's own shopping cart.
2Checkout.com has a one-time setup fee of $49.00 and takes a 5.5% commission plus $0.45 for each sale. "My product is about $30," says Godshall. "So the commission isn't bad, considering the headache I avoid, not having to deal with fraud issues."
Payment processor
AlertPay
AlertPay founder Firoz Patel saw a problem: PayPal and other payment processing companies catered well to mainstream merchants, but fell behind when it came to less serviceable markets.
"We saw this particularly with multi-level marketing," he says. "Some clients simply need more time and attention when it comes to payments."In 2004, Patel launched Montreal-based AlertPay to make online payments easier. AlertPay.com simplifies bank transfers, bank wires, direct deposits and other payment methods - everything except cash. AlertPay's team of 25 works to ensure extra security for all transactions. Back-end flagging services alert banks to security breaches, and automated fraud-tracking tools lock down accounts when activity is abnormal.The introductory rate for AlertPay is 2.5% per transaction. But if your company is off the beaten path and requires more service, be prepared to pay 3.9%.
Uniting users
TrialPay
TrialPay is a particularly unorthodox payment option. It pairs merchants with advertises to boost sales for both and offer consumers a chance to get products they're looking at for free.
Here's how it works: Merchants enlisted with TrialPay give away their products for free when a shopper completes an offer from one of TrialPay's client advertisers, who then pays the merchant a bounty that equals or exceeds the product price. The system works best for software and online services vendors that can offer instantaneous digital delivery.
TrialPay has worked with more than 2,500 merchants. You can see it in action at WinZip and Skype. Vendors can use TrialPay's shopping cart system or integrate it with any other existing shopping cart.
"Once you get the set-up done, it's all hands off," says Rick Trefzger, vice president of sales at Boynton Beach, Fla.-based iS3, which sells StopZilla anti-spyware software. "TrialPay's reporting is great -- you get a link that tracks each campaign and TrialPay will track it in real time."
Shopping Cart options
E-junkie
Tucson-based E-junkie is one of many shopping cart providers, but it distinguishes itself in the market by automating delivery. The shopping cart is an integral part of an e-commerce site experience; choosing the right one for your business takes time and research, but will make purchasing an easier experience for the customer. E-junkie particularly well-suited for do-it-yourself artists and creative freelancers. For tangible goods, its system can automatically determine what size and shape packaging works best for each product in a vendor's inventory. For digital products, it streamlines file storage and instantaneous delivery. Prices vary depending on the services selected, but start at $5 per month for 10 products.

A midlife money checkup

Are you still on pace to reach your goals despite today's market woes? Find out by taking this nine-step test of your financial health. It won't hurt a bit.
By Penelope Wang, Money Magazine senior writer

Where did the time go?
Just yesterday your financial life was all about scrambling to make rent, learning what a 401(k) was and lobbying to get out of the cubicle and into an office. Now you're pushing 45 or 50, you've got a mortgage and college tuition bills, and you're the boss of a crop of ambitious 22-year-olds.Face it, you've reached middle age. Sure, you have a long road ahead - three or four decades or more. But when it comes to your finances, you're not a kid anymore."Back in your twenties, you probably thought turning 50 was far in the future," says Mari Adam, a financial adviser in Boca Raton, Fla. "Guess what? Your future is starting now." Will that future work out the way you want? Hard to say, but you'd be wise to see how you're doing so far. That means conducting a head-to-toe money checkup that covers everything from investing to insurance.Once you know the state of your financial health, you should find it easier to get in shape and then stay on track toward your goals, whether they include early retirement, career changes or starting a business.How do you take this test? Ask yourself the same questions that a financial planner would pose. Your answers will lead you to your diagnosis and, if you find ills, a cure. Get started.

1. Are you saving enough for retirement?
When you're just starting to save and invest, this question is hard to answer with any precision. Who knows how much money you'll need in retirement when those days are eons away? Now that you're in your forties or fifties, it's easier to make an educated guess.You have a 401(k) balance or other plans you can check on (if you can bear to look today). And you probably know how long you want to keep working and have an idea of what you want to do afterward - travel, launch a second career, kick back. You still have time to refine your goals. But as retirement draws closer, you can't put off creating a concrete savings target and measuring your progress.One way to look at this is to come up with the Big Number. As a rule of thumb, figure you'll live on 80% of your pre-retirement income when you stop working. So if you make $100,000, that's a retirement income of $80,000. If you assume you have no pension and that you'll collect $20,000 a year from Social Security (get an actual estimate at ssa.gov), the remaining $60,000 will come out of your savings.The standard financial planning advice is that you can safely withdraw up to 4% of your assets in the first year of retirement. You then increase that amount each year to match inflation. So in this example you'll need to amass $1.5 million by the time you quit ($60,000 divided by 0.04, if you're keeping track at home).Work up your own Big Number and an annual savings goal with our retirement calculators. You can also use the worksheet to the right to see where you should be by now. Whether you're on target or behind, remember to keep saving. It may seem hard to buy when the market is stumbling, but think of it as a 10%-off sale on stocks you have to buy anyway.

2. Is your portfolio properly diversified?
In just the first weeks of this year, the stock market has slid some 8% and recession talk has reached fever pitch. That's especially worrisome for midlife investors. You've lived through bear markets before - 1987, 1990, 2000-02 - but now you have more money on the line and a tighter portfolio-building schedule to meet.At times like this, you want to make sure you have a mix you can live with. So check on your investments but don't chicken out. As long as you are properly diversified, you can ride out this market downturn too. Retirement may seem close, but your investing time horizon is still decades long.While boomers should have a sizable stake in bonds and cash to cushion risk, stocks should continue to be the linchpin of your portfolio. Yes, stocks can often deliver sharp losses, but they remain your best bet for outpacing inflation.By your late forties, a sound asset mix, according to planners at T. Rowe Price, is 83% stocks and 17% bonds. Gradually shift so that by age 65 you have a 60/40 mix. For maximum diversification, your equity stake should include large-caps, small-caps and foreign stocks.

3. Are your investments in the right accounts?
If you've been stashing away money for 15 or 20 years or more, you've probably built up savings in both tax-deferred plans, such as a 401(k) or an IRA, and taxable accounts. Now you need to consider what's called asset location - that is, putting investments that trigger a high annual tax bill in tax-deferred accounts and keeping more tax-efficient ones outside your plans.A study by Vanguard found that effective asset location can improve your after-tax returns by as much as 10% over 10 years. Investments that throw off a lot of income are tax-inefficient. Prime examples: bond, real estate or high-dividend stock funds. If the payouts are in the form of interest or short-term capital gains, you'll owe taxes at a rate as high as 35% on the money.Growth stock and index funds are tax-efficient. They tend to generate few short-term payouts, while any long-term gains would typically be taxed at a 15% rate. Municipal bond funds are also low (or no) tax, and the case for owning them is quite strong now

4. Have you taken on too much debt?
You've become an expert juggler - what with the mortgage, college tuition and monthly bills. But in that financial scramble, you may have lost track of just how much you owe, especially if you keep tapping your home equity for spending money.Sure, some debt makes sense - taking out a loan to buy that house in the first place, for one. But too much debt can cripple your finances, especially if you carry credit-card balances. The worst scenario would be to head into retirement with mushrooming interest payments and only a fixed income to pay them off.
Use these four guidelines to see if you're in over your head:
- 28%: Devote no more than this amount of your monthly pretax income to your mortgage.
- 75%: By age 45, limit your home loans to this portion of your home's value, says Phil Dyer, a financial adviser in Towson, Md.
- 36%: Spend no more than this much of your pretax income on all debts, including your mortgage and credit cards.
- 3 months: Set aside three months' worth of living expenses for emergencies. In tough times, six is even better.

5. Is your estate plan in order?
For better or for worse, life has grown more complicated, what with a spouse, kids, a former spouse, free-spending kids, health worries. You've worked hard to protect your family. But if you die or become incapacitated, what will happen? That depends on how well you've handled estate planning.You probably have a will - by age 50, two out of three Americans do. But that's only a start. When did you last update it? And did you complete other essential paperwork? Probably not."You want to be sure your kids and spouse will be taken care of," says Robert Armstrong, president of the American Academy of Estate Planning Attorneys in San Diego. "And you don't want all your money going to your ex-spouse or, worse, her no-good second husband, which all too often is what ends up happening."
Here's what you need:
A will: In it you need to designate a guardian for your children if they're younger than 18, as well as a financial guardian for the money they'll inherit (or a trustee if you set up a trust). "You may want to choose different people for these tasks, since they call for different skills," says Bill Knox, a financial adviser with Regent Atlantic in Chatham, N.J. "A guardian must be willing and able to raise your child, while the trustee should be good with money management."
Beneficiaries: Name them for your 401(k), IRA and investment accounts. Your will may state that all your money goes to your spouse, but that won't override the beneficiary documents if you've listed someone else.
Durable power of attorney: With this document, you give a trusted friend or family member the legal right to manage your affairs if you are disabled.
Health-care proxy: Also known as a living will, this document enables a family member to direct your medical care if you can't do so yourself.
Living trust: Consider this alternative to a will if you live in a state with slow-moving or costly probate courts. With a living trust, your estate can bypass probate.
Trusts for your children In most states, your kids will control any money put in their name at age 18 or 21. Putting their assets in a trust allows you to dictate when they collect or make sure they use the funds for college, not a convertible.

6. Are you expecting an inheritance?
A quarter of households have received at least one inheritance, according to AARP. The median amount: $49,000. As a boomer, you may see even more. The most affluent boomers (the top 40% by income) get two-thirds of all inheritance dollars, the AARP study found."If you are in line to receive a sizable inheritance, consider the impact on your financial plan," says Ross Levin, a financial adviser in Edina, Minn. First talk to your parents. If they say they hope to leave you money and you feel confident that they've accounted for long-term health-care costs, work this sum into your own plans."The amount may be enough to live on while transitioning to a more flexible career or you may be able to help your own kids with a down payment," says Levin. Or suggest that your parents look ahead to the next generation and help your children with college. If they pay tuition bills directly, that doesn't count against the annual gift-tax-exemption limits.

7. Do you have enough insurance?
You're pushing 50 (or more), but hey, you still feel like you're 40. There's no denying statistics, though, and the numbers show that the odds of developing serious medical conditions rise as you get older. If you delay purchasing or updating certain policies, you may find that coverage has become unaffordable or impossible to get.
Check your protection against this list:
Life: Back in the '80s and '90s, you did the right thing by taking out life insurance to protect your family. They'll still depend on you for another 10 years or more, but is your old coverage generous enough to replace the fatter paycheck you're bringing home today? (Conversely, if you've built up enough assets, you might not need it.) To calculate how much insurance is right for you now, fill out the online worksheet from the Life and Health Insurance Foundation for Education. If you need to buy more, term is almost always your best choice. Compared with a whole life policy, you can purchase more coverage for fewer dollars, and rates have been dropping steadily in recent years. Compare premiums at insure.com or accuquote.com.
Disability: You are far more likely to have a temporary disability than to die prematurely. But few people purchase disability coverage on their own, since annual premiums are typically 1% to 3% of your income. Still, if you don't have a group policy at work - or if you think your next job might not provide it - talk to two or three independent insurance agents to compare policies (the Web isn't much help here).
Homeowners: You've expanded the family room, redesigned the kitchen and turned the basement into a home theater, all while home prices have been skyrocketing around you (at least they were). When is the last time you compared the value of your home with your homeowners coverage? You may need a bigger policy.
Liability: You could be sued for millions if someone slips on your sidewalk or gets rear-ended by your car. As a highly paid professional, you're a more alluring lawsuit target than you were as a penniless 25-year-old. And you have more to lose. That's why in your peak earning years you need umbrella liability coverage, which provides added protection on top of your auto and homeowners insurance. Most people buy a $1 million policy.

8. What do you want to do next?
Call it a midlife crisis or call it sensible planning. But after 20-plus years in the work force, you may be a little restless. In a recent Money Magazine survey, 43% of boomers said the idea of a new job was appealing. Among young boomers, 50% said so."Now's the time to ask yourself," says financial planner Sheryl Garrett of Shawnee Mission, Kans., "do you want to keep doing what you're doing for the rest of your life?" You still have plenty of time to build a new career or launch a business, but you don't want to jeopardize your family's security by trying out random ventures.Your first step should be a career assessment, says Mike Haubrich, a financial adviser in Racine, Wis. Ask yourself: Am I happy? Have I advanced as far as I hoped? What are the prospects for my industry? Maybe you'll decide you're satisfied where you are. If so, keep acquiring new skills and network regularly to stay competitive.Or you may decide you want to switch jobs. Trouble is, an economic slowdown might be the worst time to look for work. So use this time to lay the financial groundwork:
Save more: It takes cash to cultivate your career: for training and college courses, for networking events and to pay expenses during a transition. Says Haubrich: "You have to invest in your career just as you do with your portfolio."
Budget: If you're leaving a corporate job to go solo, price individual health insurance before you leap. Or see if you can switch to your spouse's coverage. Figure out your monthly expenses so you know how much you need to earn. Trim your debt while you still have a steady paycheck.
Do research: Know the value of the retirement benefits you're giving up, including a 401(k) match and a pension. A traditional pension is worth 20% to 30% in higher pay.

9. Are you staying healthy?
Your health isn't something you'd expect to review in a financial checkup. But what could have a greater impact on your retirement security? Your physical condition will dictate everything from your medical bills to how long you can work - in a recent McKinsey & Co. survey, 40% of retirees said they'd left the job earlier than planned largely because of health problems.Unfortunately, the health outlook for boomers is far from bright. Despite a youth that spanned Jane Fonda workouts, spin classes and yoga, many are in poorer health than their parents, says Olivia Mitchell, head of the Pension Research Council at the Wharton School of Business. In a recent national health survey, many early boomers (those who are now in their mid-fifties to mid-sixties) reported difficulty walking one block or climbing a flight of stairs.So what does it take to stay in shape? Just four healthy habits can help you live 14 years longer on average, according to a recent Cambridge University study: eating plenty of fruits and vegetables, regular exercise, moderate drinking and not smoking.As longevity expert Laura Carstensen points out, if you maintain your health, you have nothing to fear from getting older. You'll actually leader a richer and more satisfying life.

Weyerhaeuser posts loss, sees 'erosion'

Lumber company swings to a loss on housing weakness, predicts difficulties will continue through 2008.

NEW YORK (AP) -- Weyerhaeuser Co. said Friday it swung to a fourth-quarter loss as the deteriorating U.S. housing market cut into demand for lumber - a downturn the paper and wood products company expects will continue through 2008.
Federal Way, Wash.-based Weyerhaeuser (WY, Fortune 500) reported a loss of $63 million, or 30 cents per share, compared with a profit of $507 million, or $2.12 per share, a year earlier. Excluding write-downs from housing-related business, restructuring costs and other special items, Weyerhaueser would have earned $90 million, or 42 cents per share, in the latest period.
Revenue fell 18% to $3.94 billion from $4.8 billion.
Analysts polled by Thomson Financial had expected a profit of 35 cents per share excluding items, but forecast higher revenue of $4.13 billion.
Chief Executive Steven Rogel called 2007 a "challenging year" for the paper and wood products industry. Paper demand has been gradually weakened by a shift to the Internet for news, billing, mailing and other information that was once communicated on paper. The housing downturn has made it more difficult for the industry to maintain profits.
"The continuing erosion of the U.S. housing market created very unfavorable market conditions," Rogel said in a statement. He added that the company expects those conditions to continue through 2008.

Recession? Where to put your money now

Gloom in the markets means great opportunities, if you've got courage and patience.
By Shawn Tully, editor at large

(Fortune Magazine) -- Here we go again. Day after day, Americans are being bombarded by a relentless drumbeat of unsettling economic news. The Dow regularly swings by hundreds of points in a single session as it gyrates near bear-market territory. Oil prices keep bubbling toward $100 a barrel. The dollar is crumbling, and a rogue trader in Paris is blamed for triggering a synchronized selloff heard round the world. We're constantly warned that an ugly recession is looming, if not already here. It's all enough to cause a panic attack.
Don't let the doomsday headlines and the careening markets scare you. Take a sip of Chardonnay - or a shot of bourbon - and remember your history. We've been through this kind of wrenching volatility many times before: during the meltdown in October 1987, the S&L crisis of the early 1990s, the Asian Contagion of 1997 and 1998, and most recently, the tech bubble of 2000. These plunges are both predictable - because they're part of the bumpy ride that holding stocks is all about - and unpredictable, because you never know when they'll strike. In fact, stocks offer big returns in the long term precisely because their performance zigzags wildly at times like these. "Investors should be grateful for bear markets, because without them stocks would offer bondlike returns," says Larry Swedroe, a financial advisor with Buckingham Asset Management in St. Louis. So while it's tough to see anything good about this rocky market while watching your 401(k) shrink - the S&P 500 index is off 13% from its high in October, and the Nasdaq has shed 18% - remember that big selloffs present rare and essential buying opportunities, and the current one is no exception.
Still, investors need to temper their courage with caution by picking investments that are genuinely cheap, not just less expensive than they were a year ago. This isn't a shopper's paradise like the early 1980s, when every type of stock seemed to be a screaming buy. But for the first time in years we're seeing lots of genuine bargains, chiefly in beaten-down sectors that have already gone through the equivalent of a steep recession. It's a great time to grab big-dividend-paying bank and pharma stocks, for example. Meanwhile, keep plenty of cash so you can pounce when still-overpriced issues - hint, the tech sector is full of them - spiral downward. It's going to happen: That's why bear markets are a gift to nimble investors.
This story will help you make smart decisions to profit from today's turbulence. We'll guide you through the market noise and Wall Street chatter so that you'll make the right moves at the right times. We'll start by looking at current conditions; then we'll get down to specific stocks, bonds, and funds to buy now.
Wall Street wisdom says that the biggest danger to the markets is the R-word: recession (generally defined as two quarters of falling gross domestic product, but "officially" determined after the fact by the National Bureau of Economic Research). However, the predictions of a deep downturn are highly exaggerated, in part because Washington is rushing to revive the flagging economy. GDP increased 0.6% in the fourth quarter (on first estimate), after a powerful 4.9% surge in the third quarter - so no contraction yet. Exports are booming, growing at an annual rate of 13%, thanks to the weak dollar. The employment picture is surprisingly resilient. Jobless claims, a reliable harbinger of recession, have averaged about 325,000 for the past four weeks, far below the danger point. "We haven't seen the 25% increase in jobless claims we had before the last two recessions," says Michael Darda, chief economist with MKM Partners, an equity trading and research firm. "We're not getting a recession signal."
The forces weighing down the economy are soft consumer spending and plummeting housing prices, along with far more expensive credit that's slowing everything from auto purchases to the creation of new businesses. Those factors are a serious drag on demand. But they pose their gravest threat in the first two quarters of 2008. If we're going to get a recession, it will most likely happen amid this turmoil, in the first half of this year.
But any slump is likely to be short and mild, mainly because Washington is on the case. Since mid-September, Federal Reserve chairman Ben Bernanke has reduced the target for the Fed funds rate by 2.25 percentage points, with the biggest move, a sudden 75-basis-point cut, coming on Jan. 22. On Jan. 30, the Fed cut another half-point, bringing the target to 3%. It usually takes six to nine months for a Fed rate cut to bolster consumer and business spending. By midyear the flood of liquidity will be channeled into new loans for companies and consumers. A resurgence in easy credit - stoking the appetite for everything from big-screen TVs to capital equipment - will be practically irresistible. Consumer spending will get another boost from the roughly $150 billion economic stimulus plan Congress is poised to approve. Checks that could range from $1,000 to well over $2,000 are likely to start going out to families this summer. The easy money doesn't stop there. The Fed has practically promised even more rate cuts. The markets are predicting that the Fed funds rate will be 2% to 2.5% by year-end. With that kind of aggressive stimulus, look for growth to jump back to the 3% to 3.5% range in the second half of the year. Says Brian Wesbury, chief economist at First Trust Advisors: "You simply don't get recessions when the Fed funds rate is at 3% or below, and the Fed is in a strongly expansionary mode."
Those low rates, though, are creating the conditions for a bigger crisis down the road. "The real challenge will be inflation," warns Darda, "not the near-term economic worries that the financial press is harping on." After fretting over surging prices early last year, the Fed is now ignoring them in its all-out campaign to revive the economy. But the threat isn't going away. In 2007 the consumer price index rose 4.1%, the biggest jump in 17 years. The combination of high oil, food, and metals prices, along with low interest rates and growing global demand, is a classic recipe for inflation. "Much higher inflation is practically inevitable," says Carnegie Mellon economist Allan Meltzer. Eventually the market will wake up to the problem, and so will the Fed. "The real danger is in 2009 and 2010," says Meltzer. "The Fed will be forced to raise rates substantially to kill off inflation, possibly causing a recession."
While the economic outlook is highly uncertain, one key fact is not: Stocks are still expensive. Wall Street analysts never tire of telling investors that equities are cheap. They cite the current price/earnings ratios, which indeed appear reasonable. The problem is that corporate earnings are coming off not just a cyclical peak but a historic pinnacle, which makes P/E ratios look artificially low. Until late 2006, average earnings for the stocks in the S&P 500 had jumped by at least 10% over the previous year for 18 consecutive quarters, a feat never before achieved. (Profit margins rose to well above their historical average as well.) Yale economist Robert Shiller has developed a formula that smooths out earnings to remove the cyclical spikes. It shows that stock prices now stand at a lofty 24.5 times earnings - well below the towering 27.5 posted in March but still leagues ahead of the long-term average of around 15.
Now we're ready to get down to business. As an investor, you face two challenges in today's tumultuous market: First, you have to choose bargain stocks while recognizing that the overall averages are still extremely pricey and have plenty of room to fall. Second, you must assemble a portfolio that will protect you from the claws of inflation, while keeping plenty of funds in cash so you can grab the beaten-down buys when they appear. We offer our advice with a big proviso: If you already have a sound, highly diversified portfolio spread across a wide variety of U.S. and foreign large-cap, value, and small-company stocks, you're already positioned to withstand and even profit from market shocks. In that case, we recommend that you do nothing. Simply stay with your plan. But if you're about to start building a portfolio, or if you've just received a big bonus or inheritance, or if you're stuck in high-cost funds guaranteed to sap a huge part of your future gains, even if you're regularly adding to your 401(k), Fortune can guide you to both profit and protection of your money in turbulent times.
Watch those fees
One thing is true in good markets and bad: Investors who pay big fees will fare far worse than those who exclusively buy ultra-cheap funds. Vanguard founder John Bogle, the leading apostle of low-cost investing, estimates that the average actively managed mutual fund absorbs an astounding 2.5 percentage points in expenses (the total of sales charges, management fees, and trading costs) - vs. one- or two-tenths of a point for most index funds and exchange-traded funds. Research shows that index funds perform just as well as actively managed mutual funds before fees, and that after fees, it's no contest. "All the studies show that expenses are the most powerful indicator of a fund's performance," says Russell Kinnell, director of research at Morningstar.
Index funds and ETFs come in all varieties, covering large and small stocks, growth and value styles, foreign and domestic, and everything in between. The most popular are those that cover the whole range of large-cap U.S. stocks, including Vanguard 500 Index (VFINX) and Fidelity Spartan 500 (FSMKX). ETFs are similar to index funds, except that they trade on exchanges like stocks. The Rydex Russell Top 50 (XLG) is a Morningstar favorite that holds the 50 largest U.S. stocks. It's a bit pricier, with annual expenses of 0.2%, but still a bargain.
Dividends can cushion the blow
The big selloff is creating a rare opportunity: a chance to buy big-dividend-paying companies at yields we haven't seen in years. Dividend stocks offer fatter yields when their prices fall - and that's precisely what has happened in sectors as diverse as financial services, pharmaceuticals, and tobacco.
There are lots of reasons to love dividends. They're taxed at only 15% at the federal level, at least until 2010. Unlike the fixed interest payments on bonds, they generally grow with earnings. So yield stocks are a great hedge in America's jittery new world of sharply rising prices, and the ability to pay a consistent dividend signals that the company is healthy. "It shows that management believes the prospects are good," says Lowell Miller of Miller/Howard Investments, a money management firm. (Of course, an unusually high yield can be a warning sign: Citigroup's yield jumped into double digits shortly before the beleaguered bank cut its payout.) For investors, the crucial task is to find solid players that are unloved but boast strong, predictable earnings. Those companies will keep dispensing - and increasing - dividends. If you want growing income for life, now is the time to pounce.
Where do you go hunting for yield? One place to start is pharma. Today Bristol-Myers Squibb (BMY, Fortune 500) and Pfizer (PFE, Fortune 500) yield over 5%, and GlaxoSmithKline (GSK) isn't far behind at 4.5%. A second category is utilities. Here, prices are far stronger, but yields remain attractive: Consolidated Edison (ED, Fortune 500) for example, pays over 5%, and its earnings are solid as granite. A number of big utilities that specialize in energy distribution offer attractive yields, and they're protected from the bumpy economy by regulated rates of returns. Pepco Holdings (POM, Fortune 500), AGL Resources (ATG), and WGL Holdings (WGL) are all paying around 4.3%. A smart strategy is diversifying via ETFs and index funds. Vanguard's SPDR S&P Dividend ETF (SDY) spreads the risk among 52 stocks that have increased their payouts steadily. Current yield: 3.5%.
Buy battered shares, if you dare
If you have a strong stomach for risk, read on. In this section we'll talk about the two most reviled, bloodied sectors in the current carnage - banks and homebuilders. The argument for buying them selectively is compelling, for this reason: They pass the test of being genuinely cheap. When it comes to banks and homebuilders, the market's expectations are extremely low, hence easy to beat. Let's look first at banks. The best buys aren't the Wall Street giants, which depend heavily on highly erratic profits from trading, but the big, diversified players that sell lots of retail products, from credit cards to checking accounts. They've suffered from write-downs too, but the worst is behind them, and the Fed's rate cuts will boost their profit margins on loans. Four excellent picks are Bank of America (BAC, Fortune 500), Wachovia (WB, Fortune 500), Wells Fargo (WFC, Fortune 500), and US Bancorp (USB, Fortune 500). BofA and Wachovia earnings have been dented by bad subprime debt but are still extremely strong. Both stocks are trading at less than 12 times the past 12 months' earnings and boast dividend yields of better than 6%. Wells and US Bancorp skirted most credit problems, yet Wells pays a dividend of almost 4%, and US Bancorp yields over 5%.
True daredevils may want to consider the homebuilders. Keep in mind, stocks usually rebound not when news in a stricken sector gets better, but well before. So it's a good time to start building stakes in the battered builders, a bit at a time, via dollar-cost averaging. Despite all the chaos in real estate, Americans aren't going to stop buying homes in the future, and the future is what counts. We recommend two. The first is Toll Brothers (TOL, Fortune 500) which has lost 60% of its value since 2005. Toll specializes in high-end homes, so it stands to reap excellent margins when markets recover. Our second pick: NVR (NVR, Fortune 500), which is known for innovative, mass-production building techniques and carries relatively little debt.
Look abroad
Want to improve your returns without increasing your risk? One answer is tilting your portfolio heavily toward international stocks. As always with a sound portfolio, the benefits will materialize over a number of years. But the time to start is now. In the past two years foreign stocks have wildly outperformed U.S. equities. European stocks soared at a 23% annual rate in 2006 and 2007, while emerging markets jumped 35% a year. In 2008, however, both markets have suffered sharp corrections, as have equities worldwide. The EAFE index of big-cap stocks worldwide now looks like a bargain: Its P/E stands at under 14, far below multiples in the U.S.
Not all foreign stocks deliver diversification. Players like Sony (SNE) or Unilever (UL) are fully global - they simply mimic the performance of other international colossi like Coca-Cola and IBM. "To get diversification, you need to go to the less liquid part of the market, to small-cap stocks," says Dan Wheeler of Dimensional Fund Advisors, a pioneer in index funds. Why do small caps work best? Because far more of their sales are concentrated in local markets. And since those markets offer very different dynamics from the U.S., they often thrive when America is swooning. The benefits? According to a study by Rex Sinquefield, DFA's co-founder, investing heavily in stocks that track local markets and in value shares yields investors an extra two points of return, without increasing volatility.
With that in mind, we suggest devoting 35% of your equity stake to foreign shares, with about two-thirds going into small-cap and value stocks, via funds like Vanguard International Explorer (VINEX). Divide the rest of your stake between a broad large-cap ETF like iShares' MSCI EAFE Index (EFA) and an emerging-markets entry like iShares MSCI Emerging Markets (EEM). DFA offers a variety of strong choices, available through financial advisors.
Beware of bonds
The problem with most bonds is that they're not paying enough to compensate investors for today's inflation, let alone the surging prices that haunt our future. Right now ten-year Treasuries are yielding just 3.6%, because in these rocky times, many investors are willing to sacrifice returns for short-term safety. As Wharton economist Jeremy Siegel puts it, "There is no value for investors in most bonds."
Indeed, for your fixed-income portfolio, only two choices make sense: municipal bonds and Treasury Inflation-Protected securities, widely known as TIPs. Now is an ideal time to buy munis. Bonds issued by state and local authorities in New York and California pay around 3.3% and are exempt from federal taxes (and local levies if you live in those states). That's the equivalent of a pretax return of almost 5%, far above the yield on Treasuries. For a diversified blend of munis, an excellent choice is Vanguard Intermediate-Term Tax-Exempt (VWITX), which boasts a yield of 3.4% and fees of just 15 basis points.
With increased inflation almost a sure thing, TIPs are an essential. They are the only investment guaranteed to keep pace with inflation. The face value of each TIP is adjusted every six months to reflect the change in the CPI. You can buy TIPs online the same way you buy Treasuries, with no fees. Simply log in to treasurydirect.gov. And Fidelity, T. Rowe Price, and Vanguard, among others, offer TIPs funds.
Finally, let's deal with cash. The best place to park it is in CDs. Even though the Fed is chipping away at short-term rates, the yields on CDs are holding up amazingly well. The reason is that banks are competing ferociously for funds, especially now that longer-term lending rates are rising. The key is to stay in maturities of six months or less - and shop around. Corus of Chicago, for example, is paying 4.1% on a six-month CD. That term is just about right. If rates rise, you can quickly move your cash into CDs or bonds that yield more.
Winning in these treacherous times is as much about psychology as following the rules. It takes guts to be daring when markets are melting down. But that's the quality that makes great investors. As Warren Buffett says, "Be fearful when others are greedy and greedy when others are fearful." Now's a time when greed, Buffett-style, is good. Just make sure your greed is highly selective.

Refinancing: Only for the privileged few

Sure, now is a great time to refinance - that is, if you can still qualify. Here is what lenders are looking for.

NEW YORK (CNNMoney.com) -- The good news: mortgage rates are down. The bad news: it's much harder to qualify for a refinanced loan these days.
What's more, the borrowers who need to refinance the most - because their adjustable rate mortgages (ARMs) are resetting to higher interest rates - are among those having the most trouble winning approvals.
"I'm turning away about 60% to 75% of the clients who come to me for a refi," said Bob Moulton, president of Americana Mortgage Group on Long Island, N.Y. "Some don't have enough equity and others have bad credit scores."
During the boom years, lenders approved most anyone with a pulse. Not so today. Mortgage brokers recognize this and are now being very selective about the clients whose applications they choose to submit to the likes of Wells Fargo or Bank of America.
If an applicant has poor credit, or a home whose value is rapidly deteriorating, they're just not going to bother.
"If the person is Sweet Polly Purebread - good income, good assets, high credit score - there's money out there," said Moulton. "But if not, then it's harder."
Interest rates are way down - 5.67% is the going rate for a a 30-year fixed loan this week, according to Freddie Mac. That has generated a spike in refinancing applications.
Total mortgage applications were up 73% last week compared with the same period 12 months ago, according to the Mortgage Bankers Association (MBA), and 69%of those applications were from borrowers seeking to refinance. Last February, when interest rates were about 6.3%, about 46% of applications were for refis.
The make-or-break metric for anyone looking to refinance right now is home equity - the difference between what is owed on a house and what the house is worth. But with home prices down, many homeowners have little of that precious commodity left.
"If you have an 80% loan, with a 10% home equity loan, you may not be able to refinance," said Peter Grabel, a mortgage broker in Connecticut - especially in down markets.
Consider a homeowner who bought in Miami a year ago with 20% down. Home prices have fallen 15% there in the past year, wiping out three-quarters of the equity. Lenders, who want collateral that's worth more than the value of the loan, are wary about having so little cushion. If they have to repossess and resell the house, they're on the hook for a big loss.
"No lender would take that deal," said Marc Savitt, president of the National Association of Mortgage Brokers. "It's a lot different from two years ago."
The bar has also been raised for credit scores when it comes to refinancing, according to Grabel. And sometimes, it's not a matter of whether someone can get refinancing but at what price.
"Those with high credit scores are getting very good rates, but the lenders have heightened the requirements to qualify," said Grabel. Instead of a score of 680 for the best rate, a borrower might need 700 now.
For example, Grabel has a client who wants a cash-out deal. The client has lots of equity in his house but a dismal credit score - 552.
"I used to have 20 lenders I could send him to; now there's maybe one," said Grabel. "The rate, though, will be high, higher than what he's paying now."
The only reason that this client will take the deal is because he's going through a divorce and needs to buy out his wife. He doesn't have time to rebuild his credit rating, but he's lucky that at least his house appraises well.
Indeed, appraisals are another tool that lenders are using to eliminate unqualified applicants.
"It used to be a formality," said Grabel. "Now it's, 'Lets do the appraisal first and see what value comes in." Lenders are scrutinizing them to a degree unheard of during the boom. They don't want to lend $160,000 on an appraised value of $200,000 unless they're sure the house is truly worth that.
Ted Grose, a past president of the California Association of Mortgage Brokers, said lenders now often conduct what he called "bench reviews" of appraisals. "They have an experienced, independent third-party go over the appraisal to make sure the numbers are accurate," he said.
Grose called many of the applicants he sees "very challenging, mostly because of high loan-to-value ratios."
Many of these people took exotic loans to get into high-priced properties. They used hybrid ARMs that are resetting to higher rates, or interest only loans.
Particularly deadly are option ARMs, which act as negative amortization loans; the payments don't even cover the interest and the balance grows over time. Combine that with falling home prices, and the loan balance may be more than the home's market value.
Under those circumstances, said Grose, few borrowers can be helped.